Are You Tempted to Sell, or Eager to Buy?

It wasn't a fun week for gold. By the close on Friday, the metal was down
6.7% (based on London PM fix prices), the biggest weekly decline since September.
It got downright irritating when the mainstream media seemingly rejoiced at
gold's decline. Economist Nouriel Roubini poked fun at gold bugs in a Tweet. Über
investor Dennis Gartman said he sold his holdings. CNBC ran an article proclaiming
gold was no longer a safe-haven asset (talk about an overreaction).

While the worry may have been real, let's focus on facts. Have the reasons
for gold's bull market changed in any material way such that we should consider
exiting? Instead of me providing an answer, ask yourself some basic questions:
Is the current support for the US dollar an honest indication of its health?
Are the sovereign debt problems in Europe solved? How will the US repay its
$15 trillion debt load without some level of currency dilution? Is there likely
to be more money printing in the future, or less? Are real interest rates positive
yet? Has gold really lost its safe haven status as a result of one bad week?

And one more: What is the mainstream media's record on forecasting precious
metals prices?

Our take won't surprise you: not one fact relating to the trend for gold changed
last week. We remain strongly bullish.

So why did gold, silver, and related stocks fall so hard?

The reasons outlined in this month's BIG
GOLD are still in play (the MF Global fallout, a rising dollar,
year-end tax-loss selling, and the need for cash and liquidity to meet
margin calls or redemption requests). Last Wednesday's 3.5% fall took
on a life of its own, selling begetting selling, fear adding to fear
(especially the case with gold stocks). None of these reasons, however,
have anything to do with the fundamental factors that ultimately drive
this market. Once those issues shift, then we'll talk about
exiting.

So, should we buy now? Is the bottom in?

Let's take a fresh look at gold's corrections and compare them to the recent
one. I've updated the following chart to include the recent selloff.

[How do I calculate the data? I look for the periods in every annual gold
chart that represent a distinct fall greater than 5%, then measure the highs
and lows.]

Our recent drop equals 12.5%. This isn't to suggest that the correction is
over, but it does show that we've already matched the average decline, which
is also 12.5%. This comes on the heels of the 15.6% fall in September. You'll
notice something else: We've now had three major corrections (greater than
5%) in one year, the first time that's happened in this bull market.

The worst-case scenario would be a drop that matched the biggest on record,
27.7%. From $1,795 - the recent interim peak price - that would take us to
$1,295. That wouldn't be fun, but a fall to that level would not by any stretch
signal the end of the bull market, nor a fall into unprofitability for our
producers. And it would represent a true blood-in-the-streets buying opportunity.
After all, that's exactly what happened in 2006 and again in 2008, and in both
instances gold eventually powered much higher. The bears were wrong then, and
they'll be wrong again this time, even if that extreme scenario were to come
to pass.

Here's the updated picture for silver:

Silver's volatile nature really comes through in these data, which measure
corrections of 10% or more. The recent decline tallies 18.4%. It, too, comes
on the heels of a recent correction, a 35.2% tumble in September. The average
of these declines is 20.3%, which would take our current correction to $28.22,
close to last Thursday's price. Like gold, we've now had more corrections this
year (four) than we've ever had in this bull market.

The worst plausible scenario we see for silver in the near term would be a
fall to $16.32, matching 2008's 53.9% drop. But you'd have to be awfully bearish
to think it will plummet that far.

These data should actually give you some comfort. We've been here before.
We've seen worse before. And yet, inevery instance, gold and
silver eventually climbed higher. So, unless you really believe that Obama
and Merkel have brought happy days back to the world economy, precious metals
will resume their ascent, and probably sooner rather than later. And when they
do, you may well never be able to buy at these prices again. Those who were
too scared to buy at $560 in 2006 and $700 in 2008 missed out on what were
some of the greatest buying opportunities of this bull market.

Would I buy now? Given that each metal has already met its average decline,
and that both have seen more corrections this year than any other, we're likely
closer to the bottom than the top. So yes, I added an extra contribution to
my favorite bullion accumulation program last week.

Either way, my advice is to spend a little more time watching the drivers
for gold and a little less time worrying about the price. Until those things
change, look for an entrance, not an exit.

While no one can know just yet if gold has bottomed or not, those
who understand the inevitable path of all fiat currencies know these prices
represent a good buying opportunity. Learn more about how to protect yourself
from being
robbed by your government - and how to invest in gold for maximum profit
potential.

Having worked on his family's gold claims in California and Arizona, as well
as a mine in a place to remain nameless, Jeff's research and writing skills
are utilized in his role as editor and one of the primary writers of Casey's
Gold & Resource Report.

Whether it is researching new companies to recommend, analyzing the big trend
in gold, or looking for other safe and profitable ways to capitalize on the
bull market, Jeff is devoted to making Casey's Gold & Resource Report the
best precious metals newsletter for the prudent investor. He coordinates the
efforts among the research and writing team, ensuring that whatever is happening
in the gold and silver market doesn't escape coverage.

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